California Apparel News

The check is in the mail.

That’s what hundreds of U.S. importers of clothing made in Central America are hoping to hear from federal customs officials.

Under rules of the recently implemented Central American Free Trade Agreement, any tariffs paid on clothing and textiles imported between Jan. 1, 2004, and Dec. 31, 2006, will be refunded for qualifying goods made in Central America.

Apparel importers have until the end of the year to file for most tariff reimbursements.

One of those lucky individuals getting a refund is David Gren, president of Maya Apparel Group Inc., a Los Angeles company that has been making children’s and juniorsapparel in Central America for five years.

“We have a substantial amount coming back,” said Gren, who has been producing up to 1.2 million units a month of mostly knit apparel in places such as El Salvador and Honduras. “It has been a long time coming,” he said. “We were taking zero-profit orders in anticipation of getting 15 percent back.”

It took Gren about 30 days to pull all the paperwork together to file with customs officials at the port of entry, which was mostly at the Port of Miami.

While many apparel items made in Central America were coming in duty- and quotafree under the Caribbean Basin Trade Partnership Act, the predecessor of CAFTA, there were certain yearly quota limits on apparel made of knit fabric spun in Central America or any kind of fabric made of yarn spun in Central America.

Last year, Gren started using fabrics made of Honduran yarns to save production time. He knew he would be able to recuperate the tariffs he was paying on the clothing shipped into the United States because of the retroactivity clause allowing tariff paybacks on goods that qualified as duty-free under CAFTA.

“That’s why most people are getting their duties back,” Gren said. “People who gambled and used [Central American] regional yarns in 2004 and 2005 are getting a windfall.”

Under CAFTA, there are no quotas or duties on apparel made from yarns and fabrics that come from the countries that signed the free trade agreement.

Patchwork trade

The Central American Free Trade Agreement has not been easy to implement. Six Central American countries are part of the trade pact with the United States. But only three countries in that region—Honduras, El Salvador and Nicaragua—have signed on. Guatemala, Costa Rica and the Dominican Republic are waiting to clamber aboard.

So that means apparel importers can apply right now for tariff rebates only on goods made in Honduras, El Salvador and Nicaragua. They can’t get rebates on goods made in Guatemala, Costa Rica and the Dominican Republic until those countries have officially modified their national rules and regulations to comply with CAFTA. Guatemala is expected to be part of CAFTA before July 1. Once these countries are part of CAFTA, importers have until the end of the year to get their rebates. If the countries become part of CAFTA after Oct. 1, then importers have 90 days to file for refunds.

Nevertheless, the whole process of filing for refunds is very complicated.

“About 99 percent who make entries for tariff refunds are using customs brokers,” said Bob Abels, chief of the textile operations branch of U.S. Customs and Border Protection. “It’s kind of like submitting corporate tax returns. You wouldn’t submit them yourselves.”

Customs brokers have been busy brushing up on the various ins and outs of the law and the paperwork that must be rustled up, such as certificates of origin that prove the goods were made from regional yarns and fabrics and entry documents filed with U.S. customs at the port of entry. “The eligibility issues can get quite complicated,” said Vincent Iacopella, a customs broker who is the managing director of The Janel Group of Los Angeles Inc., a customs broker and freight-forwarding firm working with Gren to retrieve his tariff refunds.

Iacopella was in Guatemala in May at the Apparel Sourcing Show and bumped into several apparel importers who didn’t know they were eligible for tariff rebates. “Many regional manufacturers and U.S. importers were unaware of the extent of the retroactivity,” Iacopella observed. “Most were under the impression that the rebates go back only to Jan. 1, 2005, and few knew it was retroactive to Jan. 1, 2004.”

Customs attorneys also are busy filing documents for clients who are major apparel importers. “It’s not for everybody, but that doesn’t mean there aren’t significant claims out there,” said Jason Waite, a customs attorney with Alston & Bird, aWashington, D.C., law firm. He said some major apparel importers would be getting as much as $1 million back.

But the process for getting tariff rebates is time-consuming. And, of course, the government is slow in getting rebates back to importers, said Dan Meylor, a customs administration manager for Carmichael International, a Los Angeles customs broker and freight forwarder. He said customs officials in Los Angeles were overwhelmed with work. “Customs here is short-handed,” Meylor said. “Customs has told us not to even call them inquiring about rebates for at least 90 days after the request is filed.”

Caribbean Basin Trade Partnership Act rules:

bull; Duty- and quota-free status for apparel made in CBTPA countries of fabric made in the United States from U.S. yarns.bull; Duty- and quota-free status for apparel made from knit fabric formed in CBTPA countries out of U.S. yarns, with an annual 970-million-square-meter quota limit on knitwear and a 12-million-dozen quota limit on T-shirts. But woven fabric made of U.S. yarns doesn’t qualify.

Central American Free Trade Agreement rules:

bull; Duty- and quote-free status for apparel made of any fabric manufactured in Central America made of U.S. yarns, known as a yarn-forward rule, or regional yarns.bull; Nicaragua is given a special trade preference level (TPL) letting it annually use 100 million square meters of fabric that comes from outside the region, such as Asia, for apparel. This apparel qualifies for duty- and quota-free entry into the United States. The rule phases out over 10 years.bull; Canada and Mexico will be able to supply woven fabric for apparel made in Central America and still have the goods receive duty- and quota-free status into the United States. This is subject to an annual 100-million-square-meter cap, which can grow up to 200 million square meters. This rule, known as cumulation, is designed to help stimulate apparel industry growth in the region.